Clean Tech Headwinds: Oil, Not Washington, Still Calls the Shots

Over at Freakonomics, three clean-tech experts are debating the outlook for clean-energy investment in the middle of the recession. The thrust of the question is: Which is more important for the future of clean tech—the price of oil, or what happens in Washington?

Tough going right now (AP)

John Whitehead, a professor of environmental economics at Appalachian State University, sees the sector’s future through the prism of simple economics:

During the summer of 2008, we were oh-so-achingly close to what economists call the Hotelling switch point…when rising nonrenewable energy prices meet falling renewable energy prices and energy users switch from dirty nonrenewable energy (i.e., oil, coal) to cleaner renewable energy (i.e., wind, solar) […] All of the market-based factors that were contributing to the inevitable (someday) Hotelling switch point are gone. The gap between renewable and nonrenewable prices is widening instead of shrinking[…] A good guess is that almost all large, private renewable-energy investments will be put on hold in 2009.

University of Chicago economics professor George Tolley figures the incoming Obama administration and its clean-tech pledge “makes the longer-term outlook for clean technologies more favorable than at any previous time.” But “the major kicker clouding the future remains how high the international price of oil will be; this is a more powerful influence on clean technology adoption than any U.S. policy,” he stressed.

Ethan Zindler, head of North American research for New Energy Finance, is also a little gloomy: “The first clean-energy boom, based on cheap and plentiful financing and an ever-rising oil price, appears to have passed.” But keep things in perspective, he says—oil and natural gas are cheaper than they were in the summer, but are still expensive in historical terms. And the financial crisis, by helping elect Barack Obama and opening the door to half-trillion-dollar stimulus plans, could end up benefitting clean energy in the long run, he says.

What Congress needs to do is pass policies that take square aim at that famous “switch point,” matching economics with public policy, venture capital legend John Doerr told the Senate environment and public works committee yesterday (well, part of the committee, anyway—no Republicans showed up for the hearing, according to the S.F. Chronicle).

Enacting a national cap on carbon emissions should be “the over-arching policy” for Washington, Mr. Doerr said—only by putting a pricetag on old energy’s environmental impacts can new energy have a level playing field.

Of course, he also vouched for implenting a carbon tax at the same time, underscoring the gulf between clean-energy’s aspirations and bare-knuckles political reality on the Hill.

@pjerk: "Global warming is a fraud [...]" Yeah right, and by the way, God created Earth in seven days...

No wonder things are not moving. People should stop watching CNN and Fox News and try to have a look at what's really going on out there. Just be prepared for a rude awakening from the relaxation, though.

9:43 pm January 8, 2009

pjerk wrote :

What is ironic is that 'oil' is the cleanest energy we have right now. Global warming is a fraud and you know it.

Throwing taxpayer money at it is a waste and will delay the inevitable technological progress that would come from the private sector.

When the world runs out of oil then it will be time to 'switch'. But until the relax.

6:31 pm January 8, 2009

Southeasterner wrote :

When would you rather have efficient and cost competitive alt. energy technologies developed? At $140 oil or at $40 oil?

Having a competitive alt. energy industry at $40 oil will be much better for its future than at $140 oil.

5:00 pm January 8, 2009

Lad wrote :

I think we need to stabilize the fuels market as the Europeans have done by increasing the fuels tax and use the tax to fund electric drive industries and the infrastructure. Some have suggested a differential tax that would set a floor on the cost of fuel. It wouldn't need to be much...just enough to keep alternative energy viable.

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Environmental Capital provides daily news and analysis of the shifting energy and environmental landscape. The Wall Street Journal’s Keith Johnson is the lead writer. Environmental Capital is led by Journal energy reporter Russell Gold, and includes contributions from other writers at the Journal, WSJ.com, and Dow Jones Newswires. Write us at environmentalcapital@wsj.com.